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Consumer group Which? warns government on green energy subsidies

Published on Jun 11, 2014

Which? The leading consumer group has warned Ed Davey, energy and climate change secretary, that his proposed subsidy scheme will encourage the construction of more high-cost energy projects such as wind farms that might not be profitable or deliver value for money.

Which? Has written to Ed Davey saying that plans for electricity market reform, "could result in expensive generation projects being prioritised over cheaper, more cost-effective options".The letter reflects the growing concern about the cost of the low-carbon agenda, an issue that has been raised by energy-intensive businesses and Conservative backbenchers.This comes following the day that Ofgem, the energy regulator, warned the big six were in danger of further damaging and undermining the trust in the industry by failings to pass on wholesale price reduction to their retail consumers.Which? Insists it promotes and supports a 'green' revolution and does not want to pick winners and losers in the renewable energy sector but believe the Contract for Difference (CfD) subsidy is flawed.

"It is vital that any measure that adds costs to consumers' bills is closely scrutinised at a time when energy prices are the top financial concern for customers. Whilst there has been a lot of welcome attention given to tackling the immediate cost of energy bills, Which? Believes that more attention needs to be done to address energy costs in the long term,"

Richard Lloyd, the Which? Executive director wrote in his letter to Davey regarding the plans."Could result in expensive generation projects being prioritised over cheaper, more cost-effective options. The absence of full completion from the Contracts for Difference process at the outset risks priority being given to investment that may not deliver value for money for customers."

Which? would prefer ministers to introduce competition between different kinds of technologies, onshore and offshore wind for example, as well as between operators.A briefing document sent with the letter says it is unclear how there would be any price competition for offshore wind with the current arrangement. "In our view it is not appropriate to shield offshore wind developers from competitive cost pressures... there are a wide range of costs across offshore wind projects but accurate cost information is hard to come by. Allocating subsidy competitively is the best way of revealing this information."

The coalition government has partly prioritised more costly offshore wind over cheaper onshore wind in its calculations because of huge opposition to the latter from backbench Conservatives and some local communities.

The Department of Energy and Climate Change said that CfDs provided the most efficient and effective long-term support for low-carbon generation – including nuclear, renewable and carbon capture and storage. "They give greater certainty and stability of revenues by removing exposure to volatile wholesale prices, and protect consumers from paying for support when electricity prices are high."

"This consequently makes the development of low carbon generation cheaper for both investors and consumers, and it is suitable for all forms of low carbon generation".

Michael Fallon, the energy minister who also received the letter from Which?, said at the opening of RenweableUK's Global Offshore Wind conference in Glasgow: "Offshore wind isn't just an energy sector, it's a growth sector- and its vital that as the offshore wind sector grows, its strengthens its contribution to economic growth and creating jobs in the UK- more than 6,000 people are directly employed in the industry, with a similar number of indirect jobs in the supply chain."